Alcoa earnings lift European markets despite Portugal credit rating downgrade

Alcoa lifts markets despite Portugal downgrade

LONDON — European and U.S. stock markets rose strongly Tuesday as a solid start to the U.S. corporate earnings season from aluminum company Alcoa Inc. helped investors look past a credit rating downgrade of Portugal.

In Europe, the FTSE 100 index of leading British shares was up 101.58 points, or 2 percent, at 5,268.60 while Germany’s DAX rose 107.35 points, or 1.8 percent, to 6,184.54. The CAC-40 in France was 67.35 points, or 1.9 percent, higher at 3,635.01.

On Wall Street, the Dow Jones industrial average was up 108.79 points, or 1.1 percent, at 10,325.06 soon after the open while the broader Standard & Poor’s 500 index rose 11.67 points, or 1.1 percent, at 1,090.42.

The main reason behind the rise was better than anticipated earnings from Alcoa, which traditionally kicks off the earnings season. In an after-hours statement Monday, Alcoa revealed that its second-quarter earnings per share of 13 cents — 2 cents better than expected in the markets.

A slew of American companies release quarterly results in the coming weeks and Alcoa’s result spurred hopes that the earnings season will provide reassuring signs of recovery in the world’s biggest economy.

Also supporting sentiment was the news that Greece, the most indebted of eurozone economies in terms of its borrowing relative to economic output, tapped the markets for the first time since its euro110 billion bailout in May from its 15 partners in the eurozone and the International Monetary Fund.

The auction of euro1.625 billion ($2.04 billion) in six-month Treasury bills went smoothly and the interest rate the Greek government had to pay of 4.65 percent was lower than many in the markets were anticipating.

“The sale will come as a relief to the Greek and eurozone authorities,” said Jane Foley, research director at Forex.com.

Some of the optimism in the markets was dampened by Moody’s Investor Services’ downgrade of Portugal. The agency cut its rating on Portugal by two notches to A1 amid concerns over the country’s financial strength over the medium term in light of waning growth prospects.

“Moody’s downgrade of Portugal is a reminder, if any were needed, of the difficulties many eurozone economies face in balancing necessary budget consolidation with the needs of the real economy,” said Neil Mackinnon, global macro strategist at VTB Capital.

Also, a survey from ZEW showed that German investor sentiment fell for the third month running in July, highlighting the weakness of the economic recovery in Europe’s largest economy.

Earlier, confidence in Asia had also been dented by a tumble in Chinese stocks, following the news that property prices have fallen for the first time in 18 months — a sign that government tightening measures are having an effect.

That maybe welcome news for policymakers who hope to avoid a property bubble but it has also raised concerns among investors that China’s rapid rebound from the global recession could slow.

The Shanghai Composite index retreated 1.6 percent to 2,450.29 as investors sold property developers and banks, which have lent heavily to the property sector. That led to choppy trading in Hong Kong where the Hang Seng index was down 0.2 percent to 20,429.

Japan’s Nikkei 225 stock average fell 0.1 percent to 9,537.23 and South Korea’s Kospi was hardly changed at 1,735.08.

Elsewhere, Australia’s S&P/ASX 200 dropped 0.7 percent. Benchmarks in Singapore, Taiwan, Indonesia and India also fell while markets in Malaysia, Vietnam and Sri Lanka rose.

In the currency markets, the dollar was down 0.2 percent on the day at 88.43 yen while the euro rose 0.4 percent to $1.2538.

Benchmark crude for August delivery was up $1.77 at $76.72 a barrel in electronic trading on the New York Mercantile Exchange.